Thoughts/experiences on investments in floodplains?

Question

I am looking at a property that I was hoping to BRRR. The asking price is under $50k, it doesn't need much done to it (just a few cosmetics) and I believe it could rent for at least $800+/month. It looked like an awesome deal.
However, the agent informed me that it's in a flood plain. I'm currently unsure of whether or not the property, or other properties in the area have ever suffered flood damage. (it doesn't look like this one has, from what I can see)

So, I have a few questions for those who have purchased in a flood plain:

What has your experience with investing in properties inside of flood plains been like?

Have any of your properties actually been flooded?

• If so, what happened as a result? Were the expenses large? Did you lose the tenants? How long did it take to recover and get the property bringing in cash flow again?

Would you recommend avoiding investing in properties that are in flood plains altogether?

Chris M. · Answer

@Corey Rippeto I'm with Patricia on this one. Definitely check with your insurance provider. I have two properties both in the 1% 100 year zone.  While the property may be a steal, if you finance it, you'll certainly be required to secure insurance for at least the amount of the loan.  In my area, found a $70k house that was going to cost $4k per year for flood insurance. That's an additional $333 monthly expense.  Needless to say, we paid cash.  Had the chance to buy 2 acres zoned for multifamily in a perfect part of town. Decided to pass because we would have to finance the project of a complex; meaning we would need flood ins.

Jaron Walling · Answer

I work for the Indiana Division of Water and talk to home owners who live in flood plains. If you're serious about the property I'd get professional inspection. The foundation needs to be up to code to allow water to exit with proper ventilation.

100-year Floodplain, areas with a 1% annual chance of shallow flooding. This can have a depth ranging from 1 to 3 feet. Flood elevations are derived from detailed analyses completed by the state. This is something you could find online.

I'd also contact a home owners insurance company to get an accurate quote. Flood insurance isn't cheap but it's not a deal breaker. You said it doesn't appear to have flooded. Don't expect the same appreciation as comp properties but if it's a good deal I'd go for it.

Corey Rippeto · Answer

@Jaron Walling that's interesting. I never was sure of what people meant when they used a reference such as "X-year floodplain" At first, when I found out the property was in a floodplain, I was ready to discard it. Now i'm not so sure. I think I might reach out to an insurance company to check on those rates after all, just to get an idea of what it might cost. Thanks for the advice. :)

@Patricia Steiner wow! I never would have expected it to be that costly. Nor would I have expected it to be affected Nationally. Makes investing in a floodplain area a bit more intimidating.. Still, i'd like to check on what the rates might be like, just because. Thanks for sharing and for the info. :)

@Chris M. Oof. That's quite a chunk to lose out on just to pay insurance for something that may or may not ever happen.. missing out on a good piece of land like that would be a painful blow too. I knew there were downfalls to floodplains (aside from the obvious risk of flooding), but I didn't expect it to be so pricey. I'm sure in many situations, they can work, but I don't think i'm quite ready to invest in one myself. I'll just have to learn more about them (after i've become more familiar with investing in properties that aren't in floodplains first)! Thanks for sharing that, I appreciate it. :)

Patricia Steiner · Answer

Much of Florida is in a flood zone.  And, in the last five years, the cost of insurance in even the lowest flood plain has been substantially vulgar.  A client who bought a $181k rental house, block construction, received a first quote of $19,000 a year.  It took three weeks of our broker fighting his way through insurance providers limits on policies before he found us one for $1100.  That's in addition to the normal HO coverage.  Policies are based on any flood incident anywhere in the US so if there's a disaster in Texas, the cost of the damage is spread to all securing coverage under the National Flood Insurance Program.

Before you buy, call your insurance broker and see how long it takes him to quit saying no - before he quotes you a range.  It's a cost that will only increase and it is expected that at some point in the future, the national subsidy of this insurance could be removed (it's happened before - and then thankfully Congress capped it again).

Thoughts/experiences on investments in floodplains?

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